In a Land of Entrepreneurs: Is America Doing Enough for Refugees and Immigrants?
Immigrants are more likely to start businesses than members of the native population. But to do so, they first need credit.
A White House fact sheet published March 24 outlines how the U.S. plans to support Ukrainians affected by the Russian conflict. It includes a promise to resettle up to 100,000 of the over 4 million displaced Ukrainians. This is close to 10 times more than the number of refugee settlements in the year ending September 2021.
After arrival in the U.S., refugees receive medical and cash assistance and temporary living accommodations. They have the right to work and support themselves immediately. When government funding ends, it is not unusual for the sponsoring nonprofit organization to contribute cash or in-kind resources. However, the goal is to encourage and help refugees to become independent and productive members of society within six months. For some, this could include the dream of starting a business.
In addition to refugees, the U.S. welcomes legal immigrants, many of whom come to the U.S. to find a better life. In 2021, the U.S. Census Bureau reported a record low of 247,000 net immigrants, but this is expected to grow significantly in the coming years. Although immigrants come to the U.S. under different circumstances, they face many of the same challenges as refugees when attempting to integrate into America's society and economy.
In a country with 31 million entrepreneurs, Harvard Business Review reports that immigrants are more likely to start businesses than members of the native population. And a 2018 study by the National Foundation for American Policy indicates that 55% of U.S. billion-dollar companies were founded or co-founded by immigrants. Just why immigrants are ready to take entrepreneurial risk is little understood. Previous research attributed the tendency to host-country effects, such as labor market discrimination. The Harvard Business Review attributes it to personality-based self-selection. Essentially, people with a high tolerance for risk are more likely to consider emigration and entrepreneurship as viable choices.
One of the most crucial aspects of settling in a foreign country is the ability to manage finances, become financially independent, prosper financially, and contribute to others, perhaps as an employer. In the U.S., this requires an understanding of the American financial system, including solving the conundrum of needing a credit score and good credit. Reliance on credit is in the fabric of our financial system. Without a good credit score, it can be challenging to rent an apartment, get access to a basic loan, credit card, car loan, mortgage or even find employment. Without a credit card, unexpected expenses may come at the cost of essential items. With no car loan, individuals may be limited in when and where they work and must rely on and pay for public transportation.
The possibility of securing a credit card or new business loan is dependent largely on an individual's credit score. Many new immigrants and refugees are members of a low-income population of Americans who have no credit score. They are known as "credit invisibles." Without proper guidance and tools, it is very difficult to become credit visible and build credit sufficiently to take advantage of the opportunities that come with a good credit score. This means new Americans may find themselves living paycheck to paycheck with little extra disposable income to improve their lives.
Is the U.S. failing our immigrant population by not providing the help and tools necessary early in their journey to allow them to achieve the American dream? Is it also stemming the possibility of a greater economic contribution from these individuals?
Among the many resources available to new lawful residents settling in the U.S., the United States Citizenship and Immigration Services offers a comprehensive "Guide for New Immigrants." It contains 40 pages of useful information. Part II is a 10-page section on "Effective Financial Capability Strategies for New Americans." It urges new Americans to become self-sufficient and establish a financial foothold.
The guide speaks in general terms about the importance of having a credit score and how to establish a credit score. It mentions securing employment, signing a rental lease, paying taxes, opening a bank account, applying for a loan, getting a credit card or car loan and more. It has excellent high-level explanations on the right way to establish financial roots. It is a good start, but does not provide financial tools nor address the nitty gritty of the steps to take to achieve these financial goals. Finding that information is more difficult. As a result, for many the credit building process does not begin.
That many lower income Americans, immigrants and refugees are invisible because they have no credit score is troubling but can be remedied given today's technology and access. Establishing and building a credit score is perhaps the most important step for refugees and immigrants aspiring to establish economic independence. An easier route to credit visibility would allow these individuals to get there faster. It would also help the 26 million young and low-income Americans also categorized as credit invisible by financial services institutions.
I founded Credit Sesame to help consumers improve their financial health by giving them free access to their credit information (and not just their score) and tools to understand and improve their credit. It has also become our mission to ease access into our complicated credit and financial system for those left behind. But it isn't only the new-to-credit individuals and community who benefit. According to financial analyst Richard Barrington, enabling "credit invisible" Americans to establish credit and secure credit cards would facilitate $37.8 billion in consumer transactions over a 3-year period, including from those who would start their own businesses.
New banking platforms enable the inclusion of credit-invisible communities, which is solidly in the best interests of the U.S. economy and all who value a thriving entrepreneurial ecosystem.
Related: Funding Options for Bad Credit Risks
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